Q3 2024 Reservoir Media Inc Earnings Call
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Reservoir Media's financial results for the third quarter of fiscal year 2024 and December 31st, 2023. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising that your hand is raised.
Good morning, everyone and thank you for participating in today's conference call to discuss reservoir Media's financial results for the third quarter of fiscal year 'twenty 'twenty four and at December 31st 2023.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one wanting a telephone you will then hear an automatic message Biogen Yohanan suite.
Operator: I would now like to turn the call over to Ms. Jackie Marcus with the Alpha IR Group. We'll review our agenda today and the company's forward-looking statements.
I would now like to turn the call over to MS Jackie markets.
The Alpha IR group, what would be our agenda today and the company's forward looking statements Jackie.
Jackie Marcus: Thank you, operator. Good morning, everyone. And thank you for participating in today's earnings conference call. Reservoir Media issued a press release with results for its third quarter of fiscal 2024, which ended December 31, 2023, earlier this morning. If you did not receive a copy of our earnings press release, you may access it from the investor relations section of our website at investors.reservoir-media.com. With me on today's call are Golnar Khosrowshahi, Founder and Chief Executive Officer, and Jim Heindlmayer, Chief Financial Officer. As a reminder, this call is being simultaneously webcast and will be recorded and archived in the Investor Relations section of our website. Before I turn the call over to Golmar and Jim...
Thank you operator, good morning, everyone and thank you for participating in todays earnings conference call.
One media issued a press release with the results for its third quarter of fiscal 'twenty 'twenty. Four ended December 31, 2023 earlier this morning.
If you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website.
Good investors don't reservoir Dash media dotcom.
With me on today's call are Golar calls were Shahi, founder and Chief Executive Officer, and Jim <unk> Chief Financial Officer.
As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website.
Before I turn the call over to Golar Jim.
Jackie Marcus: I'd like to take a note that today's discussion will contain forward-looking statements that reflect current views of Reservoir Media about our business, financial performance, and future events and, as such, involve certain risks and uncertainties. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs, and projections will materialize or be achieved.
I'd like to take a note that today's discussion will contain forward looking statements that reflect current views of reservoir media about our business financial performance and future events and as such involve certain risks and uncertainties are expectations beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them.
However, there can be no assurance that our expectations beliefs, and projections will result or be achieved.
Jackie Marcus: Please refer to our earnings press release and our filings with the Securities and Exchange Commission for more information on the specific risks, uncertainties, and other factors that could cause our actual results to differ materially from our expectations, beliefs, and projections described in today's discussion. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In addition to the financial results presented in accordance with generally accepted accounting principles, we plan to present during this call certain financial measures that do not conform to U.S. GAAP if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends. Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release. I would now like to turn the call over to Golmar. Golmar?
Please refer to our earnings press release, and our filings with the Securities and Exchange Commission for more information on the specific risks uncertainties and other factors that could cause our actual results to differ materially from our expectations beliefs and projections described in today's discussion.
Any forward looking statements that we make on this call or in our earnings press release are as of today and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law.
In addition to the financial results presented in accordance with generally accepted accounting principles. We plan to present during this call certain financial measures that do not conform to U S. GAAP. If we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends.
Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release.
I would now like to turn the call over to Golar Golar.
Golnar Khosrowshahi: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. Before diving into our performance in the third fiscal quarter, I want to take a moment to recognize our songwriters and artists who brought home Grammy Awards this past Sunday. Our roster earned an impressive 39 Grammy nominations across 28 categories and contributed to 10 wins, including Joni Mitchell's Best Folk Album, a sweep by Killer Mike across the three rap categories, and Best R&B Song for Chris Riddick-Chine's collaboration, Snooze, Their nominations and wins are a testament to the caliber of talent we represent at Reservoir. Beyond these accolades, another marker of success for our roster is seen by consumption and activity on the charts. As reported by Billboard's Publishers Quarterly, Reservoir earned a Hot 100 top 10 market share for the three quarters reported so far for calendar 2023. One of our top-consumed songs, Snooze by SZA, co-written and co-produced by Chris Ruddick Times, was a Hot 100 chart staple over the last year, generating over half a billion on-demand audio streams alone.
Thank you Jackie and good morning, everyone and thank you for joining us today.
Before diving into our performance in the third fiscal quarter I want to take a moment to recognize our song writers and artists who brought home Grammy Awards. This past Sunday.
Roster earned an impressive 39 Grammy nominations across 28 categories and contribute it to 10 wins, including Joni Mitchell's best folk album of sweep by killer, Mike across the three wrapped categories and best RMB song for Chris Riddick Chinese collaborations news spices.
Their nominations and wins are a testament to the caliber of talent we represent at reservoir.
Beyond these accolades another marker of success for our roster is seen by consumption and activity on the charts as reported by Billboards Publishers quarterly reservoir earned a hot 100 top 10 market share for the three quarters reported so far for calendar 2023.
One of our top consume songs Snooze spices are co written and co produced by Chris Verdict Times was a hot 100 chart staple over the last year generating over half a billion on demand audio streams alone.
Golnar Khosrowshahi: These achievements validate the talent and consistency of our roster and confirm the effectiveness of our team's strategy in signing and developing today's top hitmakers. Moving to our operational and financial performance in the third fiscal quarter, we continue to report strong growth numbers underpinned by healthy, organic growth mirroring that of the wider music industry. Luminate, the industry-standard measurement platform for tracking music sales, streams, downloads, and airplay, issued its year-end music report, which highlighted 34 percent year-over-year volume growth for total on-demand song streams globally in 2023. This includes over 13% year-over-year volume growth in U.S. catalog total album consumption, as well as an 11% growth in current total album consumption. As hip-hop celebrated its 50th anniversary, the genre continued to lead all others in U.S. consumption, contributing to over a quarter of all streaming consumption.
These achievements validate the talent and consistency of our roster and confirm the effectiveness of our team strategy and signing and developing today's top hitmakers.
Moving to our operational and financial performance in the third fiscal quarter. We continue to report strong growth numbers.
Underpinned by healthy organic growth mirroring that of the wider music industry.
Illuminate the industry standard measurement platform for tracking music sales stream downloads and airplane issued its year end music report, which highlighted 34% year over year volume growth for total on demand songs screams globally in 2023.
This includes over 13% year over year volume growth in U S catalog total album consumption as well as an 11% growth in current total album consumption.
As hip hop celebrated its 50th anniversary their genre continued to lead all others in the U S consumption contributing to over a quarter of all streaming consumption.
Golnar Khosrowshahi: Additionally, Luminate reported more than 20% annual growth in the on-demand audio streams of both Latin and country genres in the U.S. These figures are another strong endorsement of our efforts to further invest in these genres in the calendar year 2023. Included in these investments were the additions of rapper Armani White, hip-hop producer Manny Fresh, and songwriter-producer Willie Willionez, country music producers and songwriters Brent Marr, Rob Rogosta, Christian Stalnecker, and Paul Coffin, and influential Latin songwriter and producer Rudy Perez and Miami Sound Machine co-founder Kiki Garcia. Moreover, Luminate's report also suggests the potential for While India's streaming volume is currently just shy of the U.S.'s, the country saw the biggest year-over-year increase in total on-demand music streams of any nation, with an increase of nearly half a trillion streams, while the U.S. volume increased by 184 billion.
Additionally, illuminate reported more than 20% annual growth in the on demand audio streams of both Latin and countries are onerous in the U S.
These figures are another strong endorsement of our efforts to further invest in these genres in the calendar year 2023.
Included in these investments were the additions of wrapper Armani White hip hop producer, many fresh and song writer producer Willie Williams.
Country music producers and songwriters Brent Mar Robert Goster, Christian Stalnaker, and Paul Carlson and influential Latin songwriter and producer Rudy Perez and Miami Sound machine Cofounder Keay Garcia.
Moreover, Illuminates report also suggests the potential for India to overtake the U S. As the country with the highest overall streaming volume globally, while India streaming volume is currently just shy of the U S. As the country saw the biggest year over year increase in total on demand music streams of any.
Any nation with an increase of nearly half a trillion streams, while the U S volume increased by 184 billion at that rate, we could see India surpassed the U S. In 2024, what's more eliminate reported that the Hindi language music market share has more than doubled from 2021.
Golnar Khosrowshahi: At that rate, we could see India surpass the U.S. in 2024. What's more, Lumine reported that the Hindi language music market share has more than doubled from 2021 to 2023, up to nearly 8%, and also noted that over 60% of both Gen Z and millennial listener groups listen to new music to experience new cultures and perspectives. We are excited by the implications of this data, and as we enter 2024, we remain committed to investing accordingly in opportunities in this market and continuing to build relationships on the ground to support regional music and its exportation to consumers across the world. On the financial side, for the fiscal third quarter, we delivered top-line growth of 19%, 14% of which was organic. We also expanded our margins in the quarter, resulting in adjusted EBITDA growth of 25% over the prior year.
2023 up to nearly 8% and also noted over 60% of both Gen Z and millennial listener groups listen to new music to experience new cultures and perspectives.
We are excited by the implications of this data and as we enter 2024, we remain committed to investing accordingly in opportunities in this market and continuing to build relationships on the ground to support regional music and its exportation to consumers across the world.
On the financial side for the fiscal third quarter, we delivered top line growth of 19%, 14% of which was organic we also expanded our margins in the quarter, resulting in an adjusted EBITDA growth of 25% over the prior year.
Golnar Khosrowshahi: These financial results allowed us to once again beat our guidance for the quarter and, as Jim will discuss shortly, raise guidance for the remainder of the fiscal year. In addition, they demonstrate our ability to manage the business and deploy capital to further grow our portfolio. Along those lines, during the quarter, we continue to invest in our business with an emphasis on further diversifying our portfolio across various music genres. Some of our recent deals include a new publishing deal with songwriter, producer, singer, and multi-instrumentalist Theo Katzmann, best known as a founding member of American funk band Wolfpack. Theo has released four solo albums and collaborated with a wide range of artists across genres, including Kesha, Carly Rae Jepsen, Teddy Geiger, and more.
These financial results allowed us to once again beat our guidance for the quarter and as Jim will discuss shortly raise guidance further remainder of the fiscal year in.
In addition, they demonstrate our ability to manage the business and deploy capital to further grow our portfolio.
Along those lines during the quarter, we continued to invest in our business with an emphasis on further diversifying our portfolio across various music genres.
Some of our recent deals include a new publishing deal with song writer producer singer and multi instrumentalist Theo Katzman best known as a founding member of American Funk band Wolfpack. Theo has released four solo albums and collaborated with a wide range of artists across genres, including cash out.
Carly Rae Jepsen, Teddy Geiger and more.
Golnar Khosrowshahi: We also announced the co-signing of Australian singer-songwriter Grant Perez to a worldwide publishing deal for his entire catalogue and future works. This collaborative project with our Australian sub-publisher, Mushroom Music, sees our two companies come together on all creative and administrative aspects of Perez's career to take his music to new heights in the U.S., Australia, and beyond. Lastly, in conjunction with Pop Arabia, we expanded our presence in the Middle East with a deal with Intimusica, the label, publisher, and production house of Lebanese superstar Nancy Adra. The deal includes her entire catalogue and future works. With a combined total of 90 million followers across social media, she was the most streamed female Arab artist on Spotify in 2022, achieving more than 100 million plays of her songs, solidifying her moniker as the Queen of Arab Pop.
We also announced the co signing of Australian singer songwriter Grant press to a worldwide publishing deal for his entire catalog and future works. This collaborative project with our Australian sub publisher mushroom music sees our two companies come together on all creative and administrative aspects of Greg <unk> career.
To take his music to new Heights in the U S Australia and beyond.
Lastly, in conjunction with proper Arabia, we expanded our presence in the middle East with a deal with into Musica the label publisher and production house of <unk> Superstar Nancy Altura.
The deal includes her entire catalog and future works with a combined total of 90 million followers across social media. She was the most streamed female Arab artist auto Spotify in 2020 to achieving more than $100 million plays of her songs solidifying her moniker as the.
Queen of Arab pump.
Golnar Khosrowshahi: With respect to our pipeline of opportunities, we are actively evaluating multiple potential deals that will support our growth aspirations. Our pipeline sits roughly at $2 billion in total value for prospective deals, which I'd like to note does not include off-market opportunities that also remain strong. We remain a highly respected and regarded partner, and our proven reputation for being a strong steward for catalogs through our value enhancement initiatives allows us to acquire some of the best assets on the market. We look forward to closing out the fiscal fourth quarter in a position of strength with new artists joining our roster and achieving our full-year financial guidance, which Jim will address shortly. With that, I'd like to turn the call over to Jim to discuss our third quarter numbers in greater detail. Thank you, Gulnar, and good morning, everyone.
With respect to our pipeline of opportunities. We are actively evaluating multiple potential deals that will support our growth aspirations. Our pipeline sits roughly at $2 billion in total value for prospective deals, which I'd like to note does not include off market opportunities that also remains strong.
We remain a highly respected and regarded partner and our proven reputation for being a strong steward for catalogs through our value enhancement initiatives allows us to acquire some of the best assets on the market.
We look forward to closing out the fiscal fourth quarter in a position of strength with new artists, joining our roster and achieving our full year financial guidance, which Jim will address shortly with that I'd like to turn the call over to Jim to discuss our third quarter numbers in greater detail Jim.
Thank you Omar and good morning, everyone. We're pleased to report another quarter of strong financial results headlined by meaningful revenue growth in both of our business segments, and our fifth consecutive quarter of double digit adjusted EBITDA improvement our accomplishments in the quarter represented reservoirs commitment to consistent growth on both top and bottom lines.
Jim Heindlmayer: We're pleased to report another quarter of strong financial results, headlined by meaningful revenue growth in both of our business segments and our fifth consecutive quarter of double-digit adjusted EBITDA improvements. Our accomplishments in the quarter represent Reservoir's commitment to consistent growth on both the top and bottom lines. Turning to our fiscal third quarter results, revenue for the quarter was $35.5 million, which was a 19% increase versus the prior year quarter when including acquisitions. This was driven by growth in both business segments, highlighted by a 32% year-over-year increase in recorded music. Turning to our operating expenses for the quarter, our overall cost of revenue increased 13% versus the prior year quarter, driven by higher revenue for the quarter. Amortization and depreciation costs increased 14% year-over-year, driven by our continued catalog acquisition. Company administration expenses increased 17% versus the prior year period, primarily due to higher compensation costs, increased marketing spend for recorded music, and higher fees for artist managers associated with the higher revenue in that segment.
Sure.
Turning to our fiscal third quarter results revenue for the quarter was $35 5 million, which was a 19% increase versus the prior year quarter, when including acquisitions.
This was driven by growth in both business segments highlighted by a 32% year over year increase in recorded music.
Turning to our operating expenses for the quarter, our overall cost of revenue increased 13% versus the prior year quarter, driven by higher revenue for the quarter.
Amortization and depreciation costs increased 14% year over year, driven by our continued catalog acquisitions company administration expenses increased 17% versus the prior year period, primarily due to higher compensation costs increased marketing spend for recorded music and higher fees for artist managers associated with.
The higher revenue in that segment.
Jim Heindlmayer: In the third quarter, AWIBDA increased 27% year-over-year to $12.9 million. For those of you who are newer to our business model, AWBDA is a common non-GAAP KPI used in the music industry that stands for Operating Income Before Depreciation and Amortization. Adjusted EBITDA increased 25% compared to the prior year to $13.7 million. The increases in both OWIBDA and Adjusted EBITDA were driven by strong revenue growth or partially offset by higher administrative expenses. Interest expense was $5.4 million for the third quarter, compared to $4.1 million in the same period last year. Net loss for the third quarter of fiscal 2024 was $2.9 million versus $4.1 million in the prior year quarter. This resulted in a net loss per share of $0.05.
In the third quarter, OIBDA increased 27% year over year to $12 9 million.
For those of you who are newer to our business model is a common non-GAAP kpis used in the music industry that stands where operating income before depreciation and amortization.
Adjusted EBITDA increased 25% compared to the prior year to $13 7 million.
The increases in both <unk> and adjusted EBITDA were driven by strong revenue growth, partially offset by higher administrative expenses.
Interest expense was $5 4 million for the third quarter compared to $4 1 million in the same period last year.
Net loss for the third quarter of fiscal 2024 was $2 9 million versus $4 1 million in the prior year quarter. This resulted in a net loss per share of <unk>. The decrease in net loss was driven by the higher revenue and improved gross margins, but was partially offset by a higher loss on the fair value of our interest rate swap.
Jim Heindlmayer: The decrease in net loss was driven by higher revenue and improved gross margins, but it was partially offset by a higher loss on the fair value of our interest rate swaps, as well as higher administration expense, amortization expense, and interest expense. Our weighted average diluted outstanding share count during the quarter was $64.8 million. Let's turn to our performance by segment for the quarter, starting with Music Publishing. Music Publishing generated revenue of $23.1 million in the third quarter, an increase of 15% compared to the same period last year. This was driven by a 30% year-over-year gain in digital revenue and a 9% improvement in synchronization revenue, but was partially offset by a 3% decline in performance revenue. In our recorded music segment, third-quarter revenue was $10 million, representing an increase of 32% compared to the third quarter of fiscal 2023. All revenue types within the recorded music segment delivered double-digit percentage year-over-year increases, most notably led by synchronization revenue, which increased 101% versus the prior year quarter. Physical and digital revenue increased by 51% and 26%, respectively, and neighboring rights revenue increased 16%.
<unk> as well as higher administration expense amortization expense and interest expense.
Our weighted average diluted outstanding share count during the quarter was $64 8 million.
Let's turn to our performance by segment for the quarter, starting with music publishing music publishing generated revenue of $23 1 million in the third quarter, an increase of 15% compared to the same period last year. This was driven by a 30% year over year gain in digital revenue and a 9% improvement in synchronization revenue.
But was partially offset by a 3% decline in performance revenue.
In our recorded music segment third quarter revenue was $10 million, representing an increase of 32% compared to the third quarter of fiscal 2023.
All revenue types within our recorded music segment delivered double digit percentage year over year increases, most notably led by synchronization revenue, which increased 101% versus the prior year quarter.
Physical and digital revenue increased by 51% and 26% respectively.
Neighbouring rights revenue increased 16%.
I want to highlight the notable sequential improvement in our zinc revenue for both segments. While we did see lumpiness in our performance due to the writer and actor strikes in calendar 2023, which caused delays in production schedules, we saw significant improvement in demand for our catalog within the advertising market.
Current AD market is very promising and although we have yet to work through the full impact of the strikes we feel well positioned to capture should synchronization growth opportunities across both our segments as production schedules returned to normal.
Jim Heindlmayer: I want to highlight the notable sequential improvement in our sync revenue for both segments. While we did see lumpiness in our performance due to the writer and actor strikes in calendar 2023, which caused delays in production schedules, we saw a significant improvement in demand for our catalog within the advertising market. The current ad market is very promising, and although we have yet to work through the full impact of the strikes, we feel well positioned to capture synchronization growth opportunities across both our segments as production schedules return to normal. Now turning to our balance sheet, we close the quarter with total available liquidity of $121.7 million, comprised of $19.5 million of cash on hand and $102.2 million available under our revolver. This gives us ample capital to continue to fund our strategic growth objectives. We ended the quarter with total debt of $342.5 million, which was net of $5.4 million of deferred financing costs, bringing net debt to $323 million.
Now turning to our balance sheet, we closed the quarter with total available liquidity of $121 7 million.
Comprised of $19 5 million of cash on hand, and $102 2 million available under our revolver.
Gives us ample capital to continue to fund our strategic growth objectives. We ended the quarter with total debt of $342 5 million, which was net of $5 4 million of deferred financing costs, bringing net debt to $323 million.
That compares to net debt of $296 6 million as of March 31, 2023.
We've hedged nearly half of our debt at attractive interest rates, which reduced some of our exposure to higher interest rates in the calendar year.
More recently interest rate increases have begun to level off we expect our hedging strategy to continue to mitigate our interest expense in the 2024 calendar year.
Finally, I'd like to touch on our outlook for the remainder of the 2020 for fiscal year, we are raising our guidance for both revenue and adjusted EBITDA for the year to incorporate our strong third quarter results for revenue, we're raising our guidance from our prior range of 133 million to $137 million to a range of.
$140 million to $142 million. This represents 15% growth at the midpoint of our range. We now expect adjusted EBITDA for the year to be between $53 million and $55 million, which represents 16, 5% year over year growth at the midpoint.
Jim Heindlmayer: That compares to net debt of $296.6 million as of March 31, 2023. We've hedged nearly half of our debt at attractive interest rates, which reduce some of our exposure to higher interest rates in the calendar year. While interest rate increases have begun to level off, we expect our hedging strategy to continue to mitigate our interest expense in the 2024 calendar year. Finally, I'd like to touch on our outlook for the remainder of the 2024 fiscal year. We are raising our guidance for both revenue and adjusted EBITDA for the year to incorporate our strong third quarter results. For revenue, we're raising our guidance from our prior range of $133 million to $137 million to a range of $140 million to $142 million. This represents 15% growth at the midpoint of our range. We now expect adjusted EBITDA for the year to be between $53 million and $55 million, which represents 16.5% year-over-year growth at mid-term.
Looking ahead, we remain focused on our strategy of prioritizing organic growth, while making accretive acquisitions and will maintain a responsible capital deployment approach. We look forward to closing out the year within our updated guidance expectations for fiscal 2024.
With that I'll now pass the call back to Golar for closing remarks.
Thank you Jim as we look ahead, we remain committed to operating the business with rigor as we navigate a dynamic economic backdrop and as the music industry continues to grow we are confident in our ability to achieve our financial targets, which have been raised and narrowed on both revenue and adjusted EBITDA are.
Pipeline remains very active globally and across both business segments.
With the support of consistent and predictable cash flows we anticipate continuing to execute deals well within our expected return profile with that we will now open the line for questions.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to join a question you May Press Star one again, please standby, while we compile the Q&A roster.
Okay.
Jim Heindlmayer: Looking ahead, we remain focused on our strategy of prioritizing organic growth while making accretive acquisitions and will maintain a responsible capital deployment approach. We look forward to closing out the year within our updated guidance expectations for fiscal 2024. With that, I'll now pass the call back to Golnar for closing remarks. Thank you, Jim.
No first question coming from the line of Richard Baldry with Roth <unk>. Your line is open.
Thanks.
Given the focus on international can you maybe talk about what Youre seeing there.
Yes.
Greater growth opportunities are there the pace of their organic growth or.
Deal terms themselves on initiation or is it really a blend of the bowl and let me talk about whether there is a bias internationally toward either recording or publishing.
Golnar Khosrowshahi: As we look ahead, we remain committed to operating the business with rigor as we navigate a dynamic economic backdrop and as the music industry continues to grow. We are confident in our ability to achieve our financial targets, which have been raised and narrowed on both revenue and adjusted EBITDA. Our pipeline remains very active globally and across both business sectors. With the support of consistent and predictable cash flows, we anticipate continuing to execute deals well within our expected return profile.
Good morning, Rich I think its a combination of all of the factors that you mentioned, we are able to execute in those markets at very attractive pricing.
Which makes for attractive returns.
There is a the promise of future growth that we are intrigued by as subscription numbers grow as access.
Operator: With that, we will now open the line for questions. Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Two platforms develops.
So that makes it a significantly attractive to us.
The thesis being that we would like to be in a position to be content owners in the international markets on the card spend ahead of.
Operator: To withdraw your question, you may press star 11 again. Please stand by while we compile the Q&A roster. Now, the first question coming from the line of Richard Baldrick with Rod M.K. and Milan is open.
How these markets grow and consumption grows and streaming grows which will then translate into.
Richard Baldrick: Thanks. Given the focus on international, can you maybe talk about what you're seeing there that's attractive? Is it, you know, the greater growth opportunities or the pace of their organic growth or, you know, the deal terms themselves on initiation, or is it really a blend of the both?
The associated revenues and that's what makes it captivating for us.
And can you talk about sort of the go to market model in all those countries do you have to have feet on the ground is it something that can be done remotely do you feel like you have adequate resources in the right regions or do you need to sort of add to that as you.
Golnar Khosrowshahi: And then maybe we can talk about whether there's a bias internationally toward either recording or publishing. Thanks. Good morning, Rich.
Golnar Khosrowshahi: I think it's a combination of all of the factors that you mentioned. We are able to operate in those markets at very attractive prices, which makes for attractive returns. There is the promise of future growth that we are intrigued by as subscription numbers grow and access to platforms develops. So that makes it very attractive to us. The thesis being that we would like to be in a position to be content owners in the international markets on the cusp and ahead of how these markets grow and consumption grows and streaming grows, which will then translate into associated revenues, and that's what makes it compelling. And can you talk about sort of the go-to-market model in all those countries? Do you have to, you know, keep your feet on the ground?
Get better with more reps and more and more deals in those regions.
We generally subscribe to the idea that you have to have feet on the ground and develop relationships with people and those relationships forward I'm not really a big fan of doing business by proxy and in those markets.
Our operation of Hopper ABR.
Which allows us to really extend that reach in the Mena region as well as in India, where we do represent talent.
And have already begun developing that business.
So because this is very much a relationship driven business with artists and.
Catalog sellers et cetera, it's.
It's important to have feet on the ground and we have had those feet on the ground for several years now so we are very well positioned to execute there.
And maybe looking at the organic growth side of the table.
Golnar Khosrowshahi: Is it something that can be done remotely? Do you feel like you have adequate resources in the right regions? Or do you need to sort of add to that as you get better with more reps and more and more deals in those regions? We generally subscribe to the idea that you have to have feet on the ground and develop relationships with people and move those relationships forward. I'm not really a big fan of doing business by proxy in those markets, hence our operation at Pop Arabia, which allows us to really extend that reach in the MENA region as well as in India, where we do represent talent and have already begun developing that business.
Estimates are qualitatively even.
How far into recognizing royalty rate increases.
Various CRB.
Settlements et cetera.
Do you feel like you're that's a rolling you sorry recognitions. My understanding are you do you feel like Youre halfway into that is that still a pretty good tailwind for 2425, how do we think about that as a driver.
Yes.
This is Jim rich, so I think when when we think about that.
Those rate increases we're still comparing the current quarter of December 'twenty three against December 'twenty. Two December 'twenty. Two we were still in a position of really estimating and accruing what we thought that final quarter of CRB three would be we obviously have much more visibility.
Jim Heindlmayer: Because this is very much a relationship-driven business with artists and catalogue sellers, etc., it's important to have feet on the ground, and we have had those feet on the ground for several years now, so we are very well positioned to. And maybe looking at the organic growth side of the table, the estimates are qualitatively even how far into recognizing royalty rate increases from the various CRBs, you know, settlements, etc. You know, do you feel like you're, that's a rolling sort of recognition, from my understanding. Do you feel like you're halfway into that? Is that still a pretty good tailwind for 24-25? How do we think about that as a driver? Yeah, I think this is Jim Rich.
And real data in the current year were being accounted under the CRB for rates.
So there is still a little bit of that.
Of those tail winds that are helping in our organic growth in the current quarter and I think that we will continue to to potentially see that going into let's say Q1 of next year. Our June quarter as we look forward to the full resolution of.
The CRB three.
Jim Heindlmayer: So I think when we think about those rate increases, we're still comparing, you know, the current quarter of December 23 against December 22. On December 22, we were still in a position of really estimating and accruing what we thought that final quarter of CRV 3 would be. We obviously have much more visibility and real data in the current year where we're being charged under the CRV 4 rates.
<unk> increase where the Dsp's will within the next couple of days be remittance that money to the MLC and that will flow through to rights holders.
A few months after that so so once we see those true ups my expectation is that.
As we worked through that that will kind of be the.
And of.
Of that Lumpiness, if you will related to the rate increase there.
Thanks last one for me.
Jim Heindlmayer: So there's still a little bit of that tailwind that is helping in our organic growth in the current quarter. And I think that we will potentially continue to potentially see that going into, let's say, Q1 of next year, our June quarter, as we look forward to the full resolution of the CRB3 rate increase where the DSPs will, within the next couple of days, be remitting that money to the MLC, and it will flow through to rights holders a few months after that. So once we see those true-ups, my expectation is that as we work through that, that will kind of be the end of that lumpiness, if you will, related to the rate increase there. Thanks. Last one for me.
Q4 has typically been very seasonally strong.
Guidance sort of implies it's more sideways. This year are there any unusual one time impacts in Q3 that we should think about taking out they would explain that or you think just typical conservatism.
Yes, I think.
I've mentioned this on some of our previous calls, but one of our ongoing focus is is improving.
How we handle accruals.
You're obviously aware that in this business there can be some significant lags and and how revenue is accounted to us and we have an ongoing goal of improving the accuracy of our accruals and as we go through that that will naturally lead to some flattening of our quarter over quarter fluctuation.
Jim Heindlmayer: Q4s have typically been very seasonally strong. The guidance sort of implies it's more sideways this year. Are there, you know, any unusual one-time impacts in Q3 that we should think about taking out? They would explain that or, you know, think just, you know, typical conservatism.
And I think thats.
Partly what we're seeing is if you go back a couple of years you will see.
Jim Heindlmayer: Thanks. Yeah, I think that, you know, I've mentioned this on some of our previous calls, but one of our ongoing focuses is improving how we handle accruals. You're obviously aware that in this business there can be some significant lags in how revenue is accounted for to us, and we have an ongoing goal of improving the accuracy of our accruals. And as we go through that, that will naturally lead to some flattening of our quarterly fluctuations. And I think that that's partly what we are seeing, is if you go back a couple years, you will see much higher spikes in the September and March quarters and lower valleys in the June and December quarters. And now we're seeing a little bit of a smoother quarter-over-quarter cadence with our revenue. There's nothing in particular in the third quarter that I think needs to be called out.
Higher.
Much higher spikes in the September and March quarter, and lower valleys.
In the June and December quarters, and now we're seeing a little bit of a smoother quarter over quarter cadence with our revenue. There is nothing in particular in the third quarter that that I think needs to be called out.
And that's also part of the reason why when you see our.
Just the guidance you really see that.
The third quarter performance reflected in our increases for the full year guidance.
Great Thanks, and congrats on a good quarter.
Thank you.
Thank you.
Next question coming from the line of Alex Fuhrman with Craig Hallum. Your line is open.
Yeah.
Great. Thanks, very much for taking my question here.
Jim It's cross my mind here that that since reservoir has been a public company, you've often reported a very strong Q1 or Q3, and then gone on to caution investors that you really view your business in two halves and that to some extent the strong quarter may have pulled some.
Alex Joseph Fuhrman: And that's also part of the reason why when you see our adjusted guidance, you really see the third quarter performance reflected in our increases for the full year guidance. Great. Thanks and congratulations on a good quarter. Thank you. Thank you. Our next question comes from the line of Alex Fuhrman with Craig Heilme, Ulana Self-Defense.
Revenue in earnings out of the upcoming quarter can you talk a little bit about what makes this quarter different than what really gives you the confidence to be pretty significantly raising your full year guidance here.
Jim Heindlmayer: Great. Thanks very much for taking my question here. You know, Jim, it's it's crossed my mind here that, since Reservoir has been a public company, you've often reported a very strong Q1 or Q3 and then gone on to caution investors that, you know, you really view your business in half and that, to some extent, the strong quarter may have pulled some revenue and earnings out of the upcoming quarter. Can you talk a little bit about what makes this quarter different and what Well, we're only one quarter until the end of the year.
Sure.
Well we are.
We're only one quarter until the end of the year. So obviously as we get closer to the end of the year, we have more confidence in.
And where we will end the year and I think that thats.
Thats something that will that we will continue as we get close to the end of the year, we will always have better visibility and higher confidence in where we will end the year I think that.
With respect to Q3, we really just saw very strong performance, whether it's in the digital.
Revenue type or in synchronization, where we had.
Jim Heindlmayer: So obviously, as we get closer to the end of the year, we have more confidence in where we will end the year. And I think that that's... You know, that's something that will continue. As we get closer to the end of the year, we will always have better visibility and higher confidence in where we will end the year. I think that, with respect to Q3, we really just saw very strong performance, whether it's in the digital revenue type or in synchronization, where we had very strong revenue related to advertising, and that's not something that we look at as being pulled forward from Q4. So we remain confident in how we will do in Q4, and we were able to raise our guidance to reflect the outperformance in Q3.
Very strong revenue related to advertising.
And.
And thats not something that we look at as being pulled forward from Q4.
So so we remain confident in.
And how we will do in Q4, and we were able to raise our guidance to reflect the outperformance in Q3.
Okay, that's really helpful.
Thank you and then.
There's been a lot of headlines recently about the use of music on social media and Tic Toc in particular has there been any change to how your music is used or paid for on social media and do you see maybe opportunities for the industry to better monetize that channel over time.
Jim Heindlmayer: Okay, that's really helpful. Thank you. And then, you know, Golnar, there have been a lot of headlines recently about the use of music on social media, and TikTok in particular. Has there been any change to how your music is used or paid for on social media? And do you see maybe opportunities for the industry to better monetize that channel over time? Good morning, Alex.
Hi, Good morning, Alex I think.
And social media filling the filling the blank as far as the platform goes has been an area where we.
We have historically partnered with EMEA and ensured the use that the use of music is a legally license and fairly compensated for.
Golnar Khosrowshahi: I think, you know, social media, fill in the blank as far as the platform goes, has been an area where we have historically partnered with the NMPA and ensured that the use of music is legally licensed and fairly compensated for. We stand with the NMPA and in this latest action with Universal's latest action with TikTok, and we stand with our songwriters, obviously, and rights holders. It's always going to be.., an issue in the sense that these are platforms where the content is being distributed a lot of times, many times, before the legal licensing actually is put in place, and that is a battle that we will continue to fight such that we can get to a place where we're actually compensated and the music is legally licensed, and we have quite a bit of history showing that that can happen, and that these platforms can continue to thrive using the music that is both for user-generated content as well as other kinds of content that results in additional, Okay, that's really helpful, Gona.
And with the NFPA and and this latest action.
Action with the takeaway the Universal's latest action with Tic Toc.
And we stand with our song writers, obviously and rights holders.
It's the it's always going to be.
And the issue in the sense that these are platforms, where the content is being distributed some a lot of times many times before the legal licensing actually.
He's put in place.
And that is a battle that we will continue to fight.
That we can get to a place where were actually compensated and the music is legally license then we have quite a bit of history.
Showing that that can happen.
These platforms can continue to thrive using.
The music that is best for user generated content as well as other kinds of content.
Results in additional revenue for us.
Okay. That's really helpful. I appreciate that insight.
Golnar Khosrowshahi: I appreciate that insight. Thank you, Alec. Thank you. And our next question, coming from the lineup, Dan Day with the Raleigh Securities, your line is open. Yeah, morning, guys.
Thank you Alex.
Thank you and our next question coming from the line of Dan <unk>.
With B Riley Securities. Your line is open.
Dan Day: Thanks for taking the questions. Just a couple for me to, you know, the bigger DSPs, Spotify, a couple others, they put through a lot of rate hikes throughout 2023. Appreciate the color on the CRB tailwind. Whether you think these were fully reflected in the December quarter, the rate hikes I'm referring to, or do you think there's still some tailwinds as these price hikes get pushed out to more and more consumers? How are you doing Dan? It's Jim here.
Yes. Good morning, guys. Thanks for taking the questions just a couple for me.
The bigger DSP Spotify, a couple others they put through a lot of rate hikes throughout 2023.
I appreciate the color on the CRB tailwind is just.
Whether you think these were fully reflected in the December quarter, the rate hikes I'm referring to.
Or do you think theres still some tailwind as these price sites get pushed out to more and more subscribers.
How are you doing Dan it's Jim here.
Jim Heindlmayer: So I think with respect to the price increases. We're obviously very happy with what's happened over the past year with those price increases, and we are looking forward to maybe a more regular cadence of price increases, you know, having gone, you know, 10-12 years with no price increase. We are certainly looking forward to more regular improvements there. With the rates, as I mentioned earlier, I think that we are still seeing some tailwinds in the quarter as we are currently being accounted for under the CRB 4 rates and comparing that to the prior year, where we were really estimating under the CRB 3 rates. And so while there's a little bit of a tailwind there in this quarter, we think that those tailwinds will be fully Another question for me, kind of a higher level one, just wondering how you're either currently using or thinking about using any of these generative AI tools, maybe to enhance the productivity of your roster of songwriters, anything you're investing in there? And just really anything else you think worth mentioning about generative AI.
So I think with respect to the.
There's kind of two parts to your question on the price increases.
We're obviously very happy with what's happened over the past year with those price increases and we are looking forward to maybe a more regular cadence of price increases having gone.
<unk>.
10 to 12 years with no price increase we are we are certainly looking forward to to.
To more regular improvements there.
With the rates.
As I mentioned earlier I think that we are still seeing some some tailwind in the quarter. As we are currently being accounted under the CRB for rates and comparing that to the prior year, where we were really estimating.
Under the CRB three rates and so while there is a little bit of tailwind there in this quarter, we think that the.
<unk> will be fully reflected when we get the final CRB III true ups, which we are looking forward to.
In the coming months as the DSP.
Work with the MLC too.
Push that money through.
Okay great.
Another question from me kind of higher level one.
I'm just wondering how you are either currently using or thinking about using any of these generative AI tools, maybe to enhance the productivity of your roster song writers anything you're investing behind there and.
And just really anything else you think worth mentioning about about generative AI at its current or potential future impact on the songwriting industry would be it would be great.
Golnar Khosrowshahi: current or potential future impact on the songwriting industry would be great. Sure, I think there are a lot of tools that enhance efficiencies in so far as production goes, and we are seeing these develop in the studio, and we have songwriters who are already using these tools. not in a way that is Threatening to the existence of the songwriter in and of themselves, and I think there's a little bit of Noise and Misinterpretation around that side of things in that there are a lot of positive outcomes that we are seeing as a result of these tools. We are obviously very well-informed about the developments, legal developments, insofar as these tools are using existing IP. And that is an area that we And then internally in the business, we are using all kinds of AI tools in our marketing department, in our deal team, etc., and we are seeing some greater efficiency.
Sure I think.
There are a lot of tools that enhance efficiencies in so far as production goes and we are seeing these develop in the studio and we have.
Song writers.
Who are already using these tools.
Not in a way that is.
Threatening to the existence of the song writer.
Of themselves.
And I think theres, a little bit of noise.
Noise and misinterpretation around that side of things and that there are a lot of positive outcomes that are that we are seeing as a result of these tools.
We are.
Obviously very.
Well informed about the developments.
Legal developments in so far as how these tools are using existing IP.
And that is an area that we will champion the rights of our song writers as well as ourselves to ensure that IP is not being used to develop.
New IP that is based on that existing.
Product.
And compensation for that in recognition of that is obviously very important for us.
And then internally in the business.
We are using all kinds of AI tools.
And through our marketing department through our.
D L team et cetera, and we are seeing some greater efficiencies there.
Golnar Khosrowshahi: All right, great. Appreciate it, and I'll turn it over. Thank you, Dan. Thank you. I'm not showing any further questions in the queue at this time. I will now turn the call back over to Golnar Khosrowshahi for any closing remarks. Thank you, Operator, and to everyone who joined us today. We are proud of and honored to work with some of music's most important songwriters, producers, and artists across genres and eras, and we look forward to updating you on our full fiscal year performance. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Thank you for watching!
Alright, great I appreciate it I'll.
I'll turn it over.
Thank you Dan.
Thank you.
I'm not showing any further questions in the queue. At this time I will now turn the call back over to Carla Castella Shaw for any closing remarks. Thank.
Thank you operator and to everyone who joined US today, we are proud of an honor to work with some of music's most important song writers producers and artists across genres and areas and we look forward to updating you on our full fiscal year performance. Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
Okay.
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